Jiten bhai,
Thanks so much for taking time out for your insights on cyclical stocks .
Which sector you see currently whose down cycle is turning /can soon turn into upcycle?
Hey! Are you tracking power transmission and generation companies? Would love to hear your thoughts if you can provide a few insights into the current industry structure.
Jiten bhai @jitenp , do you have any thoughts on steel companies especially JSL or JSL hisar which is in specialized steel manufacturing.
Many thanks
Darshan
Iron ore pellet prices have remained steady at about 100$ and Vale closure may push the prices higher atleast in the short term. Also Godawari Power has made a disclosure on COVID-19, which is painting a bright picture for the rest of the year.
Disc: Invested in Godawari Power
Regards
SJ
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Hi Harsh : The situation is still unfolding and a lot depends on the reforms that GOI is initiating and how much they are able to execute. The key area is distribution, where the Government has decided to privatise distribution in Union Territories. If this picks up momentum, and distribution is privatised around the country, then it will unleash significant value in the sector.Currently losses by DISCOMs , and bailing out by central government is clearly unsustainable. Still the sector has been beaten down and it’s a decade since it is in a bear phase. It will emerge out of the woods, if one has a 3-5 year horizon. Meanwhile some companies are trading at attractive dividend yields and offer deep value.
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Thanks for your response. Is there a way to play this theme given that there are no listed power distribution companies (or are there? sorry for my lack of knowledge in this area). If I understand correctly, currently we have power generation and transmission companies. Power generation companies are under stress because DISCOMs do not pay them. Transmission is better because they regulated ROEs of 15% (atleast for powergrid). Do you know if other transmission companies also get regulated ROEs? Thanks for your time!
There are all kinds of hybrids which do distribution as well like CESC,Torrent etc. But personally speaking, I would prefer a pure-play. While generation is under stress, it cannot remain in stress forever for the sector to be viable and GOI will have to make it viable. So if you are a value investor, you could look at good generation companies that earn a fixed return on invested project equities like NTPC etc. which trade below book value and offer good yields. If you are a growth guy then you could look at IEX, since the energy exchange will thrive. You could also play the capital goods companies who also serve this sector like KEC and Kalpataru. So there are various ways to skin the cat
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What are your thoughts on Optical fibre cable companies? They have lost a lot of market cap in the previous two years. The leaders (like Sterlite) have fallen 80% from the peak. One big reason behind this is that whenever there is a technology change for example from 3G to 4G, there has been subdued demand, which picks up once the technology starts getting adapted. With 5G being the future catalyst, this might be the end of a cycle of lower sales which might end soon. For any digitization to occur, Optic fibre would be necessary and the leaders are trading at such low multiples. Thoughts?
the reason for fall has been majorly because of slow demand in China. Earlier they used to consume most of the said manufactured product. It allowed Indian companies could export easily. Due to slowdown in China over the past 2 years, demand for the product fell. Thus ,China had to necessarily dump their material. prices have fallen from $12 to $4.
Do you think that is a long-term situation? Or do you think that provides a good entry point. I recently heard PM Modi’s interview and he talked about Optic fiber cables and it just sounded like this is something that the administration will concentrate on going forward.
Listen to HFCL concall of Q4. They have given clear picture of optical fiber market and price trend . You will get some idea. Price of optical fiber he said presently is 3.5$
problem is of pricing. till the time the price does not recover, sector will not recover. will have to wait for prices to recover.
i am not invested in these sectors. just tracking for educational purposes.
This one did really well. Up more than 80% in a little over than 2 months. When markets throw you a “full toss” and if you have the temperament, then “hit it for six”.
Of course, I never expected that this will runup so fast. So have taken profits home in 60% quantity.
“Value Investing is not dead”
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Could you share your position sizing about this? how much % of PF you put on such situational plays?
Jiten bhai,
Which sector has downcycle moving into upcycle and can give good returns ? Thanks
Hello Jiten,what’s your opinion of the graphite electrode sector?Considering the steel industry capacity utilisation is low and new EAF capex likely to be deferred in current situation,the downcycle is set to continue atleast into 2021.And dumping by the Chinese worsens the plight of the Indian graphite electrode sector further. Any metrics to track the turnaround of the cycle?
currently not tracking it closely enough. cycle turns are never very quick, especially with the kind of cycle they had.
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Hi Jiten, any thoughts and inputs on the Copper and Aluminium cycle
From a contra perspective, I am invested in stocks of both Al and Cu. Copper prices have moved up a bit. Let’s see if it sustains. My view is of a couple of years. Of course, in between, may end up booking profits, if runup is sharp.
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Thanks @jitenp for your valuable inputs.
From a data point of view I check the LME price graph for Copper and Aluminium to see the ovreall trend, is there any other data source that you would suggest to get more details to play this theme.